Barclays Tells Investors 'The Smartest Man' Is Buying Industrials Like General Electric And Honeywell

Barclays’ Scott R. Davis mentioned that the “smartest man” is buying equity, especially liquid large cap industrial names such as General Electric Company GE and Honeywell International Inc. HON, rather than high beta or smid-caps.

In Favor Of Industrials

Davis noted that this was a sharp reversal from the previous update when the “smartest man” was selling General Electric to acquire more beta-driven stocks.

The analyst stated that in the 1980s, PMs needed to focus for the first time on fund flows rather than fundamentals, since Japanese investors were bidding the value up for commonly branded assets, irrespective of valuation.

“So much money was flowing into USD assets from Japan that smart PMs just had to focus on very basic companies. Some called a group of these the "nifty fifty", and they were largely consumer product related,” Davis said.

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Who Is 'The Smartest Man'?

While the analyst does not specifically name "the smartest man," Davis provided these hints:

• "I had a chance to catch up with whom many of us view as the most thoughtful industrial investor."
• "[C]onsistent with our previous series, we refer to him/her as the "smartest man."
• "The smartest man meets with me because he says I'm one of the few who will offer a different view with sound reasoning and help his process."

A Repeat Of The 1980s?

However, the analyst pointed out that the “smartest man” views fundamentals as neutral/negative, while anticipating the next big “Fed-driven bubble” in U.S. equities.

The “smartest man” also believes industrials included names that could easily be part of the modern day “nifty fifty,” given that there were many similar characteristics between the favored names in the 1980s and the industrials of today.

“He cites high and rising dividend yields, good cash flow, solid balance sheets, ability to hold/expand margins with cost initiatives, and he thinks that overall the S&P 500 doesn't have that many sectors that compare in this regard,” Davis stated.